U.S. stocks traded lower Monday as investors parse earnings from Goldman Sachs Group Inc. and Citigroup Inc., which could provide further guidance on the state of the banking sector and the broader economy.
How are benchmarks faring?
The Dow Jones Industrial Average DJIA, -0.16% edged 41 points lower to 26,372, a loss of roughly 0.2%, while S&P 500 futures SPX, -0.17% ticked 4 points lower to 2,903, a loss of 0.1% The Nasdaq Composite Index COMP, -0.33% fell 16 points, or 0.2%, to 7,967.
What’s driving the market?
Earnings season comes into fuller swing, though the week will be shortened by the Easter holiday, with results from Goldman Sachs GS, -3.02% and Citigroup C, +0.04% Monday.
Both banks showed sharp declines in earnings compared with the first-quarter of last year, but were able to surpass analysts’ low expectations for quarterly profits. On the revenue front, Goldman fell short of estimates while Citigroup matched, underscoring muted trading and mergers-and-acquisition activity on Wall Street in the first quarter. Blue chip Goldman shares were down 2.7% Monday, weighing heavily on the Dow.
Investors were cheered by quarterly results from Dow component JPMorgan Chase & Co., which kicked off a new earnings season Friday, that came in better than expected, while Wells Fargo & Co. also posted robust revenue and in-line earnings.
Analysts expect first-quarter earnings numbers for the S&P 500 to suffer the first year-over-year decline in nearly three years as macroeconomic headwinds continue to pull down estimates from analysts.
On Saturday, global financial policy makers at an International Monetary Fund conference said they stood ready to “promptly shore up growth” if needed. While the economy is expected to continue expanding in 2020, risks remain tilted to the downside amid concerns centered on trade tensions, policy uncertainty and geopolitical developments.
On the trade front, U.S. Treasury Secretary Steven Mnuchin told reporters over the weekend that the U.S. and China were moving closer to an agreement on trade, with phone discussions between the two countries last week. But he wasn’t sure if more face-to-face meetings would be needed. On Sunday, Reuters reported that the U.S. was watering down demands that China cut down on industrial subsidies as a condition for a deal after encountering strong Chinese opposition.
Federal Reserve policy could also be on traders’ minds, after President Trump renewed his attacks on the central bank Sunday. He criticized rate increases enacted during the first two years of his administration, as well as the bank’s balance sheet reduction program, known as qualitative tightening, which is set to end in September.
If the Fed had done its job properly, which it has not, the Stock Market would have been up 5000 to 10,000 additional points, and GDP would have been well over 4% instead of 3%...with almost no inflation. Quantitative tightening was a killer, should have done the exact opposite!
— Donald J. Trump (@realDonaldTrump) April 14, 2019
Fed Chairman Jerome Powell has repeatedly asserted the central bank’s independence from political influence, while pledging to serve our his four-year term, ending in early 2021.
What stocks are in focus?
Shares of Advanced Disposal Services Inc. ADSW, +18.96% Waste Management Inc. surged 19.7% after Waste Management Inc. WM, +2.75% said it entered into an agreement to buy the rival waste company in a $4.9 billion deal. Waste Management will pay $33.15 a share in cash for Advanced Disposal stock, a 22.1% premium to its Friday closing price.
Shares of Canadian legal cannabis maker Aphria Inc. APHA, -12.68% slumped 13% Monday after the Canada-based cannabis company swung to a wide third-quarter loss in the most recent quarter.
Alliance Data Systems Corp. ADS, -9.40% stock fell 8.6%, following news that French firm Publicis Groupe SA PUB, +1.19% would acquire its consumer data unit Epsilon, and after ADS shares were downgraded to market perform from outperform at BMO Capital.
What are the analysts saying?
Corporate earnings reports have yielded few surprises so far, said Tom Martin senior portfolio manager at Globalt Investments. “In the absence of any macro news or surprising corporate announcements, markets a trading mostly flat,” he added.
“Despite an ambitious strategy to diversify the bank’s revenue streams from its core investment banking activities—such as the launch of Marcus, its online banking service—Goldman’s revenue structure remains quite static, with trading activities still accounting for 41% of the bank’s revenue, while investment management, with strategic growth opportunities, only accounts for 17%, mirroring last year’s results,” wrote Axel Pierron, managing director of capital markets management consultancy Opimas, in an email.
“Expectations of a U.S./China trade deal continue to rise, with some anticipating an announcement this week…But, as a reminder, the market has already priced in a deal, so the real focus of any announcement will be when tariffs are removed, and the sooner, the better,” wrote Tom Essaye, president of the Sevens Report, wrote in a Monday morning note to clients.
What economic data and Fed speakers are ahead?
Factory production in New York state picked up in April versus March, with the Empire State business conditions index rising from a reading of 10.1 from the previous months’ two-year low of 3.7.
Chicago Fed President Charles Evans told CNBC Monday morning “I can see the funds rate being flat and unchanged into the fall of 2020. For me, that’s to help support the inflation outlook and make sure it’s sustainable.”
Evans will give a speech at the New York Association of Business Economists at 1 p.m. He is a voter on the Fed’s interest-rate setting committee.
At 8 p.m. Boston Fed President Eric Rosengren, also a voter, was set to give a speech at Davidson College in Davidson, N.C.
How are other markets trading?
Stock markets in Asia closed on a mixed note Monday, with Shanghai’s Composite index SHCOMP, -0.34% and Hong Kong’s Hang Seng Index HSI, -0.33% each losing 0.3% on the day. Japan’s Nikkei 225 NIK, +1.37% meanwhile, rose 1.4%. European markets were trading slightly higher, with the Stoxx Europe 600 up 0.1%.
In commodities markets, crude oil futures CLK9, -0.77% fell 0.7%, while the price of gold GCM9, -0.24% and the U.S. dollar DXY, -0.01% were each lower Monday.
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